Wednesday, August 22. 2018

On August 20th, the SEC adopted amendments to improve transparency in the municipal securities market by better informing investors about the current financial condition of issuers of municipal securities and obligated persons. These amendments concern Rule 15c2-12 of the Securities Exchange Act and focus on the material financial obligations that could influence an issuer’s liquidity, overall creditworthiness, or an existing security holder’s rights.

The municipal securities market is an approximately $3.8 trillion dollar market, and every day investors are exposed through many avenues, including mutual funds, closed-end funds, and money market funds. Enhanced disclosure will permit more informed decisions on the part of investors and their intermediaries.

The affected rule, Rule 15c2-12, mandates that brokers, dealers, and dealers acting as underwriters in primary offerings of municipal securities to determine that the issuer or obligated person has agreed to provide to the Municipal Securities Rulemaking Board (MSRB) timely notice of particular events.

The amendment adds two new events to what was previously included in the rule:

Incurrence of a financial obligation of the issuer or obligated person, if material, or agreement to covenants, events of defaults, remedies, priority rights, or other similar terms of a financial obligation of the issuer or obligated person, any of which may affect security holders

Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of the financial obligation of the issuer or obligated person, any of which reflect financial difficulties

With the new amendments, the term “financial obligation” means a (i) debt obligation, (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation, or guarantee of either of (i) or (ii). This term does not include municipal securities for which a final official statement has been provided to the MSRB as per Rule 15c2-12.

The new amendments will become effective 180 days after their publication in the Federal Register.